Earned Value Management

Earned Value - What is it?Simply, it is a project monitoring and measurement system that:establishes a clear relationship between planned accomplishments and actual accomplishmentsreinforces and rewards good planning practices*

BA 424 Project Management in Aviation and Aerospace

Earned Value - What is it?Basic concepts of Earned Value Management (EVM)Each task in a project earns value as planned work is completedFor example (perhaps), if you were paid on this basis, you would earn $$ at key milestones based on the value of what you have completed (earned value)Earned value can be compared to actual cost and budgeted cost to determine variance and predict future performance*

BA 424 Project Management in Aviation and Aerospace

Earned Value - What is it?The budgeted cost (e.g., dollars, person-hours, person-days, etc.) in terms of your baseline plan/budget of the work performed up to a specified point in timeAlso known as Budgeted Cost of Work Performed (BCWP)Each task in the Work Breakdown Structure (WBS) is assigned a BCWP based on its individual cost.Project BCWP is total of BCWP for all tasks required to complete the project*

BA 424 Project Management in Aviation and Aerospace

Earned Value ComponentsPlanned Value (a.k.a. BCWS)How much work (person-hours) you planned to have accomplished at a given point in time (this is from the WBS in your plan)Actual Cost (a.k.a. ACWP)How much work (person-hours) you have actually spent at a given point in timeEarned Value (a.k.a. BCWP)The value (person-hours) in terms of your base budget of what you have accomplished at a given point in time (or, % complete X Planned Value)*

BA 424 Project Management in Aviation and Aerospace

Earned Value: ExampleOn Day X:PLANNED VALUE (Budgeted cost of the work scheduled, BCWS) = 18 + 10 + 16 + 6 = 50EARNED VALUE (Budgeted cost of the work performed, BCWP) = 18 + 8 + 14 + 0 = 40ACTUAL COST (of the work performed , ACWP) = 45 (from your project tracking - not evident in above chart)*18814Today

BA 424 Project Management in Aviation and Aerospace

Earned Value: Example*Cost (Person-Hours)Time (Date)Planned Value: what your plan called for sending on the tasks planned to be completed by this date.TodayEarned Value: value (cost) of what you have accomplished to date, per the base plan.Actual Cost: what you have actually spent to this point in time.Budgeted (Planned) SpendingActual SpendingEarned Value

BA 424 Project Management in Aviation and Aerospace

Earned Value: Example*Cost (Person-Hours)Time (Date)TodayBudgeted (Planned) SpendingActual SpendingEarned Value

BA 424 Project Management in Aviation and Aerospace

VarianceAny schedule or cost deviation from a specific plan.Used within an organization to verify the budget and schedule for a projectFrequently used as a key component of plan reviews and performance measurement*

BA 424 Project Management in Aviation and Aerospace

VarianceMust compare scheduling and budget variance at the same timeSchedule variance: deviations from work planned not a measure of changes in costCost variance: deviations from the budget not a measure of work scheduled vs. work completedExample: applying more $$/people to a task may maintain the schedule, but it adds to cost schedule on track over budget on expenses (cost)*

BA 424 Project Management in Aviation and Aerospace

Performance IndicesCost Performance IndexCPI = BCWP/ACWPSchedule Performance IndexSPI = BCWP/BCWSAnalysisCPI > 1.0 exceptional performanceCPI < 1.0 poor performanceSimilar for SPI*

BA 424 Project Management in Aviation and Aerospace

Earned Value & Variance: ExampleOn Day X:PLANNED VALUE (BCWS) = 18 + 10 + 16 + 6 = 50EARNED VALUE (BCWP) = 18 + 8 + 14 + 0 = 40ACTUAL COST (ACWP) = 45 (from your project tracking)Therefore:Schedule Variance = BCWP BCWS = 40 - 50 = -10 (behind schedule)Schedule Performance Index = 40 / 50 = 0.8, or 80% of plan (a B-, at best)Cost Variance = BCWP - ACWP = 40 - 45 = -5Cost Performance Index = 40/45 = .89, or youre getting an 89 return on every $1.00 (or, person-hour) spent on this project*

BA 424 Project Management in Aviation and Aerospace

Primary Measurement MethodsMeasurable effortsDiscrete increments of work with definable schedule and tangible results (i.e., real tasks with a deliverable)Level of effortWork that is not discernable in discrete, measurable tasks (e.g., project management, training)*

BA 424 Project Management in Aviation and Aerospace

Determining % Complete When?Allocate based on time spent but what if you spend more time than allocated?Allocate 50% at start of task, 50% at end But only for small, discrete tasksAllocate 100% at start of taskAllocate 100% at end of taskBest solution if you keep tasks very smallAllocate value at Critical Milestones Good solution when using with contract workOthers?*

BA 424 Project Management in Aviation and Aerospace

Another Example ProjectPlans to spend $100K in each of first 4 weeks (baseline budget, per documented plan)Actuals, at end of week 4 show: $325K spentBCWS = $400K ($100K x 4)ACWP = $325KWhat conclusions can you draw?Under budget?Is project on schedule?*

BA 424 Project Management in Aviation and Aerospace

Another Example ProjectSuppose BCWP is $300KHow is this determined?What conclusions now?SV = BCWP BCWSSV = $300k - $400K = -$100KBehind schedule, but what does the $100K in variance really mean?CV = BCWP ACWP = $300K - $325KOver budget by $25K*

BA 424 Project Management in Aviation and Aerospace

Earned Value ManagementHow can you use this information?Careful analysis of variance and trendsResetting schedule or budget, when appropriateVariance Analysis QuestionsWhat is the problem causing the variance?What is the impact on time, cost and performance?What is the impact on other efforts, if any?What corrective action is planned or under way?What are the expected results of the corrective action?*

BA 424 Project Management in Aviation and Aerospace

Earned Value ManagementExtraordinary variance or alarming trends may be cause for reset or cancellation of a project, but where do you draw the line?How much variance to allow depends on a number of factors:Life-cycle phaseLength of life-cycle phaseLength of projectType of estimateAccuracy of estimate*

BA 424 Project Management in Aviation and Aerospace

Variance Projection*

Performance Index Trends*

Ideal Performance Index*

Closing Thoughts: Management ReserveThe padding always added to a project for unexpected costs that are within project scopeNot an allowance for changes to scopeNot part of the cost estimateAdded by upper management, not the project manager.*

BA 424 Project Management in Aviation and Aerospace

Closing Thoughts: Government RequirementsU.S. government contract cost tracking often must include:BCWSBCWPACWPEstimated cost at completionBudgeted cost at completionCost and schedule variances with explanationsTraceability*

BA 424 Project Management in Aviation and Aerospace

SummaryCost, in the form of Earned Value or BCWP, can be used to analyze progress of a projectUsing Earned Value data to make critical project decisions must be based on careful analysis of data, variances and trends

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BA 424 Project Management in Aviation and Aerospace

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